Market Perspectives November 15, 2013

1. Chicago Board of Trade Market News

Outlook:Speculators had recently established a record short position and prices sold off into last Friday’s November WASDE, but USDA data did not give sufficient justification for bearish traders to drive corn futures lower. Corn futures rebounded 20 cents after the report, but then bearish traders refocused their attentions on the prospect of EPA adjusting down the mandates of future ethanol consumption. Reminiscent of the decline in corn futures prices that occurred before the release of the highly anticipated November WASDE, corn futures spent most of this week working lower in anticipation of an adjustment to biofuel policy. However, the contents of the impending announcement were already expected by the majority of market participants.

The general expectation by the market was that the Environmental Protection Agency (EPA) could moderately reduce the mandate for corn-based ethanol because total fuel consumption has not been as great as expected. However, any substantial adjustment to the Renewable Fuel Standard (RFS) mandate was expected to primarily be directed toward cellulosic ethanol production. Nevertheless, bearish traders anxiously awaited the probable announcement from EPA and paid little attention to large export sales figures or a relatively stout basis. Short traders desired a reason to shove the December 2013 corn contact back down to the recent low of $4.15 per bushel that occurred immediately prior to the release of the November WASDE. After all, their time to remain in the nearby contract is limited and they need it to test the recent lows sooner rather than later. EPA made a public statement prior to the close today and the corn market did not fall apart. (A summary of EPA’s statement can be read in the ethanol section.) In relation to the outlook of feed grain prices, this seems to have been another opportunity for savvy corn traders to, “sell the rumor, buy the fact”.

2. CBOT Corn Futures

December Corn Futures

CBOT Table

Current Market Values:

Futures Price Performance

3. U.S. Weather/Crop Progress

U.S. Drought Monitor Weather Forecast: 

The NWS HPC Quantitative Precipitation Forecast (QPF) calls for moderate precipitation across the Pacific Northwest, Northern Rockies of Idaho and Montana and the mountains of western Colorado. Precipitation accumulations of approximately one inch are expected along a north-south corridor extending from the lower Mississippi River Valley to the Upper Great Lakes.

The 3-7 day outlooks call for a high probability of above-normal temperatures across most of the West and the Eastern tier, while below-normal temperatures are expected across the Southern Plains and South. Below-normal precipitation is expected across most of the West and central Great Plains while there is a high probability of above-normal precipitation across the eastern third of the Lower 48. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin

4. U.S. Export Statistics

Export Sales and Exports
U.S. Export Inspections
USDA Grain Inspections for Export Report

Corn: Net sales of 1,202,900 MT for 2013/14 reported for Mexico (301,400 MT), Japan (226,800 MT, including 50,600 MT switched from unknown destinations and decreases of 73,000 MT), South Korea (150,900 MT), China (115,700 MT, including 47,300 MT switched from unknown destinations and decreases of 5,400 MT), unknown destinations (90,300 MT) and Saudi Arabia (74,000 MT), were partially offset by decreases for Venezuela (5,000 MT). Exports of 463,800 MT were primarily to Mexico (134,800 MT), China (121,000 MT), Japan (51,900 MT), Peru (32,200 MT) and Guatemala (28,600 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 100,000 MT, all Mexico. 

Barley: There were no sales reported during the week. Exports of 100 MT were to South Korea.

Sorghum: Net sales of 138,200 MT for 2013/14 were for unknown destinations (61,300 MT), China (61,000 MT, including 55,000 MT switched from unknown destinations), and Japan (15,800 MT, including 6,700 MT switched from unknown destinations). Exports of 8,500 MT were to Japan (6,700 MT), China (1,700 MT) and Mexico (100 MT). Optional Origin Sales: For 2013/14, outstanding optional origin sales total 60,000 MT, all China.

6. Distillers Dried Grains with Solubles (DDGS)

DDGS Comments: Strong exports continue to drive the DDGS market with demand from China, Mexico and Canada leading the way. Merchandisers report that some buyers are now requesting prices for all of 2014. Chinese buyers seem to be requesting lower prices while buyers from Vietnam are keeping up with the offers. Domestic U.S. buyers continue to be somewhat frustrated with DDGS values in relation to CBOT futures contacts and they are not keeping up with present price levels for the January-March period.

There are reports of good container loading out of Oakland for January-June delivery and out of Savannah for the January-September period. Asian buyers remain active sales at the following price levels:
• Qingdao/Shanghai: $323 JAN – MAR
• HCMC $335 JAN & FEB
• Haiphong $338

Ethanol Comments: In order to alleviate potential problems that could occur due to current gasoline consumption being less-than-expected when the Renewable Fuel Standard (RFS) was implemented in 2007, the Environmental Protection Agency (EPA) proposed making limited reductions to the mandated amount of corn-based ethanol consumption and larger reductions in mandates of cellulosic ethanol production. The intent is to avoid any problems with the “blend wall” thath could occur if the annual requirement mandated by Congress is greater than the 10 percent amount of ethanol that can be mixed into conventional blends of gasoline.

The initial diagnosis is that the mandate for minimum corn-based ethanol production could decline from the 2013 production level of 13.8 billion gallons to between 12.7 billion and 13.2 billion gallons in 2014. It should be noted that the EPA stressed there is a continued commitment to promote U.S. biofuels. As well, this is a “proposal” on the part of the EPA, which will be open for 60 days of public comment before being made final next year.

Ethanol production will continues to have a market both domestically and abroad. Ethanol production for the week ending November 8 averaged 927,000 barrels per day (bpd) in comparison to the prior week of 920,000 bpd. Total U.S. stocks remained unchanged from week to week at 15.2 million barrels, which is 15.1 percent below year ago. The differentials between corn and the co-products values indicate that ethanol producer margins remain favorable cross the Corn Belt:

• Illinois differential substantially increased to $3.24 per bushel, which is up from $2.64 the prior week and above $1.56 for this same week a year ago.
• Iowa differential increased to $2.51 per bushel, which is up from $2.28 the prior week above $1.35 for this same week a year ago.
• Nebraska differential increased to $2.30 per bushel, which is up from $1.88 the prior week and above $1.65 for this same week a year ago.
• South Dakota differential decreased to $2.62 per bushel, which is down from $2.88 the prior week but well above $1.51 for this same week a year ago.

7. Country News

Brazil: The world’s top exporter of corn shipped 20.8 MMT of corn between January-November 10, 2013, which was an improvement over the 19.77 MMT exported in the entirety of 2012, reports Reuters. Brazil exported 22 MMT of corn in the 2012/13 crop year, while the United States exported 18.58 MMT. However, USDA predicts that Brazilian exports will drop off in December and January and at that point the United States will then resume its place as the world’s top exporter of corn.

China: The Chinese government is mounting a massive public relations campaign in order to dispel the belief held by many of the country’s citizens that GMO corn is unsafe for consumption, according to Reuters. China’s burgeoning population has made food security a very real concern for the government and this media campaign is part of a larger effort to secure food sources.


Further on China: The government will continue to purchase domestic corn for the state reserves. This is expected to keep domestic prices higher than those on the global market and will likely trigger increased imports. The government announced that the price at which it will purchase domestic corn will be between 2,220-2,260 yuan/MT ($364.37-$370.94/MT). China stockpiled more than 30 MMT of corn in 2012.

Indonesia: Deputy Agricultural Minister Rusman Heriwan has stated that the country should lift its ban on the production of genetically modified grain in order to boost production, reports Reuters. Skyrocketing food prices over the past five years had caused the government to set a goal of being self-sufficient in beef and corn production by 2014, however the country is unlikely to meet this goal at the current level of production. Indonesia currently allows for the importation of GM feed corn, but has not allowed the introduction of GM seed for domestic production due to widespread negative public opinion.

Israel: Seed tech firm Kaiima Bio-Agritech has announced that it has developed a method to accelerate the process of genome doubling in crops without altering their genetic makeup, according to Reuters. However, details are currently being withheld regarding the particulars of this development. Israel has long been a leader in agricultural technological development and its total agricultural technological exports in 2011 totaled some $3.4 billion.

Japan: The Ministry of Agriculture announced that it will import 10,390 MT of feed barley via an SBS auction that closed on Wednesday, according to Reuters. The government had sought to purchase 120,000 MT of feed wheat and 200,000 MT of feed barley and will be seeking the same amounts in another tender to be held on November 20

8. Ocean Freight Markets and Spread

Bulk Freight Indices for HSS

9. Ocean Freight Comments

Transportation and Export Report: Jay O’Neil, O’Neil Commodity Consulting:It is a very mixed bag for this week’s dry-bulk ocean freight markets. The Capesize market is relatively steady with iron ore raters from Western Australia still trading in the low $9.00/MT range. The Supramax and Handymax markets remain firm, but the Panamax market continues to struggle. The Baltic Panamax index (BPI) was down 3 percent last week and is down another 8 percent this week. You have to go back to September 19 to find a BPI at a similar level.


The Christmas market rally anticipated by vessel owners certainly has not yet materialized. The weakness in the Pacific is widening the U.S. Gulf/PNW freight spread and pushing more grain business to the U.S. West Coast. Canadian West Coast grain facilities have seen record vessel backups and loading delays.

The current wait for ships to transit the Panama Canal is about five days. Approximately 15 ships are transiting each way while an estimated 35-40 ships are lined up daily to transit from each direction. There are 7 open booking slots available every day and each slot is being auctioned at the $100,000+ level, all of which are taken mostly by tankers.

Baltic Panamax Dry-Bulk Indices
Below is a recent history of freight values for Capesize vessels of iron ore from Western Australia to China:
Capesize Iron Ore
U.S. Asia Market Spreads

The charts below represent January-December 2011 and January-December 2012 annual totals versus January-September 2013 year-to-date container shipments for Philippines.

International Freight Rates for Feed Grains

10. Interest Rates

Interest Rates